When asked for my opinion on the Prime Minister’s announcements at the Conservative Party conference on the “rebirth” of social housing, my response was that it managed to be both positive and underwhelming.
We should be clear that any commitment to more social and affordable housing is a very positive thing and to hear those words from a Conservative prime minister is encouraging given the current homelessness challenges. Whilst we might, and I will, challenge how much £2bn of extra funding can achieve, it is, nonetheless, a significant sum for a very prudent government to release.
It was also, subsequently, a good thing to have the announcement on the rent formula at CPI plus one percent, which enables a five year view of rent setting for business plans. It had generally been assumed that there would be a reversion to this type of policy, following the four years of rent cuts, but now local authorities and housing associations can plan rather than assume.
For me the impact of the extra £2bn was watered down by the announcement before of a further £10bn for help to buy.
Now, it is important to be clear that this is not an apples and apples comparison due to the differences in the two schemes and when they would appear, crucially for the Treasury, on the national debt figures. It did, however, appear to show symbolically the relative priority of social housing post Grenfell compared to the desire to increase home ownership.
The government has indicated that the support will enable a grant of £80,000 per new home built creating 25,000 additional homes over five years.
Again, any additional new social and affordable homes should be greeted positively but, in the face of rising homelessness and waiting lists, an extra 5,000 properties per year is a drop in the ocean of current housing need. Any large housing authority is likely to have a waiting list well in excess of the annual national number of new homes from these extra monies.
The funding also comes at a point of a relative peak in the construction cost curve. The development fees being presented to local authorities, certainly in the south, are such that a subsidy of £80,000 is unlikely to be sufficient on larger family homes and that is where demand is greatest and supply is at its lowest.
These developments could be viable if authorities are also able to apply one-for-one receipts in addition to government grant, particularly if land has to be acquired, but it is not clear whether this is the case. This is an important point as, currently, under the Mayor’s rules, councils and housing associations are not able to use one-for-one receipts and GLA grant on the same units.
On the rent formula: this could appear as an acknowledgement of the policy error, in social housing terms at least, of imposing the one percent rent cut for four years.
I was the finance director at Barking & Dagenham at the time of that announcement and we, and others, immediately contacted DCLG for details. Staff there were caught completely unaware of the change, as it had been conceived by the Treasury with an entire focus on the housing benefit bill without considering the impact on social housing business plans.
Overnight, the Barking & Dagenham HRA business plan was revised downwards by more than £300m. This was replicated across the land as billions of pounds of potential financial capacity to deliver new homes was lost.
Reinstating the inflation link from 2020 is therefore helpful in confirming future funding. It is only, however, able to offer relatively limited assurance for local authorities and housing associations as the break even point for new developments is typically twenty to forty years.
As well as the announcement only covering a five year window, it also covers the period of the next (due) general election and therefore the latter years of the policy cannot be taken for granted.
There were two big social and affordable housing related omissions for me in Theresa May’s speech.
The first was any indication of a lifting, or at least a review, of the HRA borrowing cap. This government is seriously opposed to any additional borrowing but without a relaxation of the current debt restrictions, many housing authorities do not have the resources to match fund any new build programmes.
This segues in to my second point: a relaxation of the limits on the use of one-for-one right to buy receipts. This is currently capped at 30% of eligible spend and requires councils to fund the remaining 70%.
If this rule was scrapped, or the cap increased, many authorities who are struggling to spend their one-for-one receipts due to the cap could deliver many more homes.
Finally, the point that really interested me in the Prime Minister’s speech was her reference to land when she said: “We, the government, will make sure the land is available”.
This was made as a challenge to house builders to develop the necessary properties, but it could make the important difference for affordable homes. In many parts of the country, the challenge is the limited amount of available land and that the land that does exist is not under local authority ownership or control.
If the government were to allow local authorities to take control of all public sector land in their area, the development of new homes could increase exponentially and, with the two changes above, it genuinely could be a “rebirth” of social housing.
Jonathan Bunt is a consultant and
former finance director at
London Borough of Barking and Dagenham.